Current account switching could die out as banks pull offers

Moneyfacts data shows extent of banks watering down account perks.

The volume of current account switches is set to fall, as banks continue to withdraw incentives to lure new customers and the second lockdown brings inertia.

Financial experts Moneyfacts have issued this warning, pointing to Lloyds Bank’s recent decision to pull its £100 switching offer for new customers. Meanwhile, NatWest is planning to withdraw its £125 incentive next week. 

In addition, perks on many current accounts have been cut and fees have increased. For example, Santander has raised the charge on its 123 Lite account to £2 per month, while the bank has cut the cashback on offer for mobile, home phone, broadband and paid-for TV bills from 3% to 1% in the 123 current account.

In light of these changes, Rachel Springall of Moneyfacts is urging consumers not to sit on their hands, and to take advantage of switching incentives while they are still available. For example, HSBC is still offering a £125 upfront payment for those who wish to switch to its Advance account, albeit lower than the £175 offer that was previously available.

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“Clearly, it is vital consumers decide carefully if now is the time to switch, but if they wait too long, they may well miss out on a free cash switching perk. At present, providers will be assessing how they can sustain any lucrative offers in light of the pandemic,” she said.

With this in mind, consumers will need to consider whether it is worth keeping their account, Springall said. She also advises those who are thinking about switching to look closely at the new bank to make sure they are comfortable with their proposition and track record. For example, figures from the Current Account Switch Service (CASS) showed that consumers turned to so-called challenger banks, like Starling Bank and Monzo, between July and September. 

This suggests that people are growing tired of the major high street banks, which saw net losses in current account switches during the period.

“Starling Bank gained over 11,000 switches over the second quarter and although it does not currently offer a cash switching perk, its service levels are high, it offers a simplistic structure and reasonable overdraft tariff, and may well entice customers looking for an alternative to what is available from the high street banks. 

“Perhaps then, consumers are becoming wiser to what is essential for their day-to-day banking needs, which may well have been highlighted due to the Coronavirus pandemic,” Springall explained.

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Andrew Hagger of personal finance website MoneyComms, echoes these sentiments.

“I would say, don’t just stick to the big high street names, look at the likes Starling and Monzo. They are very innovative and might offer you new features that you do not get with your everyday high street bank,” he explained.

For anyone who is looking to switch, Hagger suggests looking closely at a prospective current account’s features and checking the small print before signing up. For example, some will require a certain amount to be paid in each month, so an individual must be comfortable with this.

Looking ahead, he suspects that current account switch figures will fall over the coming months. As England’s second lockdown gets under way, switching is likely to move down the priority list at a time when job security and income concerns dominate.